Cross-Line of Control Trade Peacebuilding and economic potential
Dipanker Sengupta, Ershad Mahmud and Zafar Iqbal Choudhary with support from Conciliation Resources
Logo using multiply on layers
Logo drawn as seperate elements with overlaps coloured seperately Research team This report has been jointly authored by Dipanker Sengupta, Ershad Mahmud and Zafar Iqbal Choudhary. The lead researchers were further assisted by Faisal Zubair Abbasi, Attiqur Rehman, Bhanu Pratap Singh, KD Maini, Saqib Bandey and Raman Sharma. Sengupta led the study as lead economist. The Centre for Peace, Development and Reforms (CPDR), Mirpur, and Indus Research Foundation (IRF), Jammu, partnered in sharing ideas and platforms for interactions.
Acknowledgements This report, first published by Zafar Iqbal Choudhary in Jammu (India) in December 2012, was commissioned by and published on behalf of Conciliation Resources, UK, with the support of the Ploughshares Fund (for research work) and the Government of Finland (for printing). The views contained in this publication are those of the authors and should not be taken to represent the position either of Conciliation Resources or others who have helped to make the study possible. The lead consultants on this report – Ershad Mahmud and Zafar Iqbal Choudhary – are grateful to Conciliation Resources for the research grant, guidance and mentoring throughout the research work. Special thanks are due to Jonathan Cohen, Conciliation Resources’ Director of Programmes, and Tahir Aziz, Programme Manager, India–Pakistan (Kashmir). The research team would also like to thank Conciliation Resources for organising a mid-term appraisal workshop at Bangkok in March 2012, which facilitated the researchers from both sides of Line of Control to exchange notes and bring their thoughts together.
Disclaimer The Princely State of Jammu and Kashmir as it existed until 1947 lost its collective name along with the geographical unity. From the Indian official point of view the entire state is still known as Jammu and Kashmir but the areas on the west of the Line of Control (LoC) are referred to as Pakistan occupied Kashmir. From the official Pakistani point of view the former state is seen divided into three units: Azad Jammu Kashmir, Gilgit-Baltistan on the Pakistani side, and Indian occupied Kashmir on the Indian side. The United Nations refers to the two sides as Indian administered Kashmir and Pakistani administered Kashmir. Some independent accounts, even within India and Pakistan, make use of IaK and PaK. For the purpose of this study we have mostly used the official names – Jammu and Kashmir (J&K), and Azad Jammu Kashmir (AJK) – unless specified otherwise. To make the frequent references more understandable, in some parts of this report we have also used terms ‘LoC East’ for Jammu and Kashmir and ‘LoC West’ to Azad Jammu Kashmir.
Cover photo © Amiruddin Mughal
2 • Cross-Line of Control Trade Peacebuilding and economic potential Contents
Research team 2
Acknowledgements 2
Disclaimer 2
Map of the region 4
Introduction 5
Executive summary 6
Line of Control is central to revived peace process 7
Cross-LoC trade begins 8
Softening LoC: The stakeholder perspective 9
Kashmiri dissidents and militant groups 10
Peace sentiment: What do traders think? 10
Cross-LoC trade: Analysis and recommendations 11
The basis of trade: What do LoC East and West have? 12
LoC East 12
LoC West 13
The potential consequences of a single market 13
Analysing volume of trade and goods traded 14
Business sentiment: What do traders think? 16
The possible consequences of trade ‘regularisation’ 17
Jammu and Kashmir: A common market for trade and investment 17
Summary and conclusion 18
Appendices:
I Agreed outcomes of the meeting of India–Pakistan Working Group on Cross-LoC CBMs, held on 18 July 2008 in Islamabad 19
II Standing operating procedures for Cross-LoC Trade, current July 2012 19
III Cross-LoC Trade: Banking mechanism proposed by Jammu and Kashmir government and unveiled on 4 October 2012 21
Glossary 22
Sengupta, Mahmud and Choudhary • 3 Map of Jammu and Kashmir region Courtesy: Kashmir Study Group
4 • Cross-Line of Control Trade Peacebuilding and economic potential Introduction
India and Pakistan agreed to launch trade, in 2008, Federation were formally constituted in 2012 across the Line of Control (LoC) between Jammu in a unique democratic process after sustained and Kashmir on Indian side and Azad Jammu and consultations led by Ershad Mahmud and Zafar Kashmir on Pakistani side essentially as a measure Iqbal Chaoudhary with stakeholders in Pakistani of building peace and confidence but with some and Indian sides of Kashmir. economic spin offs for the stakeholders. Business merely for the promotion of peace is no profitable The research work makes simultaneous foray into stipulation and therefore not a sustainable the realm of peacebuilding and hard economics of process. But if cross-LoC trade in Kashmir does cross-LoC trade. Another significant aspect of this not contribute to the intended area of peace and work is the essential cross-LoC collaboration and stability then the confidence building measure is not teamwork between economists, political analysts, worth further promotion. civil society actors and peace practitioners who Peace and profit have to be mutually complimentary looked at different questions from the strength to make the process sustainable. In this backdrop, of their expertise. With the assistance of second the present study on Peacebuilding and the economic line of researchers, the team worked closely with potential of Cross-LoC Trade was conceived and the stakeholders, political actors and government designed to address both the questions –peace and officials to put their pieces together in the shape of profit. Since the launch of trade in 2008 significant this final report. body of research and literature came out of Indian, The report opens with a background to the Kashmir Pakistani and Western sources but every study has conflict and then goes on to delve deeply into addressed one question or the other but not both the status of the line that divides the erstwhile together in their entirety. princely state of Jammu Kashmir between India The present work is significant in its many aspects. and Kashmir –first as ceasefire line and then as One of the important steps of the study is the long the Line of Control. Subsequent sections look at term engagement with the stakeholders which series of developments in Kashmir and discussion contributed to the formation of Joint Chamber of on the Composite Dialogue Process leading to Commerce and Industry1 and of Joint Federation softening of the Line of Control for limited travel of Cross-LoC Traders2. After an agreement in 2005 and trade in 2008. The next section is on between the key stakeholders signed at Istanbul the economics of cross-LoC trade, past trends in November 2011, the Joint Chamber and Joint and future possibilities. In-depth literature review, extensive interviews with cross-LoC traders, key 1 For a note on background of JK Joint Chamber see http://www.c-r.org/ political and civil society actors and peacebuilders news/joint-chamber-strengthens-cooperation 2 For background, process and membership see http://www.kashmirtimes. have contributed to final thoughts in shaping up com/newsdet.aspx?q=1059 this study.
Sengupta, Mahmud and Choudhary • 5 Executive Summary
The Cross-LoC trade and travel formally launched may be just a fraction of the India-Pakistan in 2008 and 2005, respectively, is the single biggest bilateral trade of $ 1.9 billion5 but this makes achievement of India-Pakistan dialogue in Kashmir. immense significance in the given non-traditional The other achievement worth mentioning is an operational conditions. unwritten agreement on ceasefire along LoC and To harness the full economic and peacebuilding international border which has been a success potential of Cross-LoC Trade India and Pakistan since 2003 despite occasional incidents of violation. should broaden the scope of cross-LoC travel to The softening of LoC for travel and trade is though allow registered traders free, frequent and hassle by no means a lasting settlement of Kashmir issue, free travel on either side. neither proposed as such India and Pakistan, but Except few odd incidents the cross-LoC trade has still it is seen as a matter of immense satisfaction not led to any security compromise. Based on this and achievement for almost all segments of society, experience the governments should agree and particularly the divided families along both sides of expedite the process of communication and banking LoC in Jammu and Kashmir. facilities for cross-LoC traders not only at the trade The fact that agreement on cross-LoC trade and facilitations but also at other business centres like travel came in barely few rounds of discussions and Srinagar, Jammu, Muzaffarabad and Mirpur. without any major hassles on technical issues is an In view of the limited production base on both sides indicator of the possibilities of India and Pakistan of LoC trade should be opened to services and achieving greater cooperation on Kashmir. hospitality sectors. With the change in political and security dynamics The India-Pakistan Joint Working Group of cross- of the Kashmir conflict over decades some political LoC CBMs should meet regularly to review sections as well as militant groups are opposed to progress on trade, revise list of trade items on the CBMs as it is seen as replacement of political basis of market assessment and address issues dialogue However, the growing stakes of the traders emerging in between intervals. The Joint Working and rising hopes of the divided families softened Group should ideally co-opt non-official members these political sections and militant groups. the representatives of the cross-LoC Joint Except on two occasions when temporarily Chambers. suspended due to situations arising out of Based on the success of Cross-LoC trade, India violations of ceasefire along the Line of Control the and Pakistan should move to the next steps and trade has continued uninterrupted despite ups and look into other possible areas of collaboration downs security situation or diplomatic relations like education, healthcare, environment, disaster between India and Pakistan. This fact is a potential management and tourism. indicator of the possibilities of more cross-LoC collaborations in Kashmir. To achieve the intended purpose of cross-LoC trade it is important to have the political and civil society Despite unique topographical disadvantages and interactions going on alongside. large distances from main markets the participation3 of traders from parts of divided state, except Gilgit- Baltistan on Pakistani side and Leh district on Indian side is an indicator of economic as well as peacebuilding potential of the cross-LoC trade. In the limited and controlled business environment on the basis of barter and in absence of proper infrastructural and communication facilities the cross-LoC trade has continuously grown to register monetary value worth $ 340 million4 in four years. The average annual trade of $ 85 million
3 For participation profile of Cross-LoC traders see an earlier report, released as part of this study, at http://www.c-r.org/sites/c-r.org/files/ perception_survey_peacebuilding_crossLoC_trade201204.pdf 4 PNR 1592.27 exports from AJK to J&K and INR 963.16 exports from J&K to AJK between November 2008 and November 2012. Sources: All Trade Facilitation Centres 5 During 2011-12. Source ASSOCHAM
6 • Cross-Line of Control Trade Peacebuilding and economic potential Line of Control is central to revived peace process
Exhibiting courage to put the bitterness of replaced Vajpayee as Prime Minister. The change in previous years aside and make a fresh beginning, guard kept the continuity in peace process intact. in July 2003, diplomatic relations and direct The Foreign Ministers of India and Pakistan took transport links were restored between India and a fresh look at the Composite Dialogue in New Pakistan. In November a ceasefire along the Delhi in September 2004 while Musharraf and Line of Control was initiated which emerged as Singh met in New York later in the month. Views biggest Confidence Building Measure on Kashmir were exchanged on all issues but what emerged until that date. The foundations of a revived and most significant was to open the LoC in Kashmir longest peace process, which eventually led to a for travel. The first major breakthrough on the slew CBMs on Kashmir including the softening technical issues related to bus service across LoC of LoC, was laid in January 2004 when Prime came about in December 2004 in a delegation level Minister Vajpayee and President Musharraf meeting between the officials of Indian ministry of met in Islamabad on the eve of SAARC summit. Surface Transport and Pakistan’s Foreign Affairs. ‘The Islamabad summit was a model of high- The real moment of joy for millions of people minded diplomacy. Divisive words were not across both sides of LoC in Kashmir came on spoken, substantive private sessions were held February 16, 2005 with the formal announcement and common purpose was evident throughout. of bus service to run between Srinagar and Musharraf and Vajpayee promised to fight Muzaffarabad. The joint statement issued from terrorism, promote trade and work cooperatively Islamabad said: on energy projects. Most strikingly, Musharraf “Both governments have agreed to allow travel across pledged to prevent the use of territory under the LoC between Srinagar and Muzaffarabad by Pakistan’s control to support terrorism in any bus. Travel will be by an entry permit system, once manner6. identities are verified. Application forms for travel will The Composite Dialogue Process was fully revived be available with designated authorities in Srinagar in June 2004 in pursuance of a decision taken by and Muzaffarabad. The bus service is expected to Vajpayee and Musharraf in January. The revived commence from 7 April 2005.” peace process, along the lines of Composite The formal launch of bus service on 7 April 2005 Dialogue, had a range of CBMs and risk reduction was a historic moment and first ever significant measures between the two countries but Kashmir outcome of any India—Pakistan dialogue on assumed a central position and all Kashmir related Kashmir. While the mood was festive in all regions negotiations mostly veered around the Line of and among all communities on both sides of LoC Control. The period between 2003 and 2008 was of in Jammu and Kashmir but a militant attack in highest attention to Kashmir in any India-Pakistan Srinagar on the eve of launch was a noteworthy dialogue. New Delhi and Islamabad were able message that some sections wanted discussions on to talk and do more about Kashmir only when core political issues. The fortnightly run of the bus they found out the Line of Control as a common service, however, made significant contributions ground for engagement with no challenge to their in changing the dynamics of conflict as people-to- traditional positions. Years before full revival of the people contacts enhanced trust and confidence. peace process Prime Minister Vajpayee had started Barely ten days after launch of the Srinagar- talking about ‘forward movement on Kashmir under Muzaffarabad bus service President Musarraf the ambit of humanity’. President Pervez Musharraf was in New Delhi on invitation of Prime Minister would often talk about ‘out of the box’ solution. Manmohan Singh. In a way the meeting between Hints from both sides indicated willingness for the two leaders was the celebration of the success making the LoC porous. The smartly crafted of peace process insofar as progress on Kashmir. peace process laid focus on the CBMs which A 17-point joint statement issued at the end of had the people of Jammu and Kashmir and their their deliberations stressed on further cooperation humanitarian concerns, not the political positions, across the LoC as also range of fresh CBMs at the centre of engagements. between mainland India and Pakistan. The Kashmir In summer of 2004 the Congress party returned specific points of joint statement said: to power in New Delhi and Dr Manmohan Singh “In this spirit the two leaders addressed the issue of Jammu and Kashmir and agreed to continue 6 Michael Krepon in ‘Evaluating The Vajpayee-Musharraf Meeting In Islamabad, January 11, 2004; http://www.stimson.org/essays/evaluating- these discussions in a sincere and purposeful and the-vajpayee-musharraf-meeting-in-islamabad/ forward looking manner for a final settlement.
Sengupta, Mahmud and Choudhary • 7 They were satisfied with the discussions and Despite cumbersome permit regime the cross- expressed their determination to work together to LoC travel not only revived contacts between carry forward the process and to bring the benefit divided families but also contributed to a regional of peace to their people. discourse for peace and stability. It was the India- They also agreed to pursue further measures Pakistan cooperation on Kashmir which eventually to enhance interaction and cooperation across helped New Delhi to revive its internal peace the LoC including agreed meeting points for process with Srinagar. In February 2006 Prime divided families, trade, pilgrimages and cultural Minister Manmohan Singh convened a roundtable interaction. conference on Kashmir which was attended by representatives from different spectrums of society. They condemned attempts to disrupt the Srinagar- Muzaffarabad bus service and welcomed its The Hurriyat Conference boycotted the meeting successful operationalisation. The two leaders but participation of some second rung of Kashmiri pledged that they would not allow terrorism to separatist leaders was conspicuous. Another impede the peace process. roundtable conference chaired by Prime Minister Singh in Srinagar later in May led to constitution They decided to increase the frequency of the bus of five Working Groups. One of the Working Groups service and also decided that trucks would be ‘named strengthening relations across LoC’ allowed to use this route to promote trade. They recommended, in April 2007, a range of measures also agreed to operationalise additional routes including that between Poonch and Rawalakot.” for cooperation and collaborations between the divided parts of Jammu and Kashmir. While main The decision between Prime Minister Singh and recommendations greatly focused on making trade President Musharraf to expand the LoC cooperation and trade easy and accessible for everyone on both by opening one more link, increasing frequency sides of LoC there was a wide range of additional of bus and allowing trade on the route came suggestions on collaborations in the areas of as massive opening for peacebuilding through education, environment and disaster management. people-to-people contacts. Another cross-LoC bus The Working Group also suggested formation of service rolled out in June 2006 between Poonch a contact group of legislator to discuss issues of in Indian side and Rawalakot on Pakistani side. mutual concern and cooperation.
Cross-LoC trade begins
In the summer of 2008 India faced serious Kashmir-specific CBMs, and allowed intra-Jammu problems in Kashmir Valley following street Kashmir trade and truck services. On July 18, 2008, protests over a temple land controversy. Prolonged the India-Pakistan Joint Working Group on cross- curfews in the trade hub of Jammu severely hit LoC CBMs met in Islamabad to discuss the list of essential supplies in the Kashmir Valley. In August items to be allowed for trade through the truck several thousands of Kashmiris took a march along service. 7 Jhelum Valley Road . The protest towards Line of Getting an immediate launch date from Pakistan Control symbolically meant that trade links with was a challenge for India as Islamabad was going Muzaffarabad in Azad Kashmir be restored. Scores through political change. After general elections of of protesters getting killed in clashes with security earlier that year ousted Pervez Musharraf regime, forces posed a serious political problem for India Asif Ali Zardari of Pakistan Peoples’ Party took not only on domestic front but also its context of over as President on September 6, 2008. New its international image. As restoration of peace in Delhi greeted the new leadership in Islamabad the Valley became a gigantic task the launch of but a formal contact at high level was yet to take cross-LoC trade appeared one potential possibility place while crisis was deepening in Kashmir. The of soothing the bruised emotions in Kashmir backchannel was activated to make progress on through CBM. cross-LoC trade. On September 22, 2008, the modalities regarding the movement of trucks, A decision on Cross-LoC trade had already been code of conduct for the drivers, permits, security, taken but dates for launch and other technical timings and list of items to be traded were agreed issues were still under discussion. The Foreign upon between Pakistan and India to conduct cross- Ministers of India and Pakistan met on May 21, LoC trade. 2008 to discuss new and existing Jammu and Prime Minister Singh and President Zardari met in 7 The Srinagar-Muzaffarabad road the Valley’s only trade route before 1947 New York on September 25 on the sidelines of UN
8 • Cross-Line of Control Trade Peacebuilding and economic potential General Assembly meeting. Besides establishing 21 as the date for the launch of cross-LoC trade. first contact on Zardari’s election as President and The joint statement also reiterated commitment reviewing with him the Composite Dialogue, the to the ceasefire and mutual desire for resolving biggest thing on Prime Minister Singh’s agenda was their outstanding issues. Following this, cross-LoC obviously getting Pakistan to agree on a date for the trade on the Srinagar-Muzaffarabad and Poonch– launch of cross-LoC trade. This was a crucial test Rawalakot routes commenced from October 21, for India-Pakistan peace process and depth of its trust. President Zardari responded positively. Both 2008. Twenty-one items were identified for duty leaders issued a joint statement8 declaring October free passage from each side. The basis of selection of items, however, still remains unclear. 8 http://indiatoday.intoday.in/story/Joint+press+statement+after+Manmoh an-Zardari+meeting/1/16072.html
Softening LoC: The stakeholder perspective
The recent India–Pakistan Confidence Building education and sports could help India and Pakistan Measures on Kashmir have mainly bordered around tide over their historical bitterness and help them the Line of Control. Opening the Line of Control at fight the common challenges together. However, two points has been the one and only substantive for being in a position of mainland cooperation it outcome of India-Pakistan dialogue on Kashmir. In is important for both countries to achieve stability terms of understanding the peacebuilding potential in Kashmir. The fact that India and Pakistan were of cross-LoC trade, or any cooperation across able to enhance mainland cooperation –new trade the LoC, it is important to understand long term regime, new visa regime, cultural exchanges goals of the key stakeholders – India, Pakistan and and sporting ties –only after significant progress different segments of society across the divides in in Kashmir with LoC openings as the centre of Jammu and Kashmir. engagements. It is a recognised fact that the issue of Kashmir is very complicated and it goes beyond As we have seen in earlier sections in this report a porous LoC but the journey of LoC from being and many other developments over the last decade, a line of conflict and military hostilities to a line which have not been discussed here, would suggest of commerce and cooperation is significant to the that India, Pakistan and the people of Kashmir have success of peace process as it goes on. reached the Mutually Hurting Stalemate Stage9 on Kashmir. Some critical statements from militant The people of Jammu and Kashmir, belonging to groups and their ideologues notwithstanding all regions and communities, have always seen the there is a general consensus that there is no division of their State as unnatural and the drawing other way of lasting peace and stability in Kashmir of the LoC as against their wishes. Whatever than reaching an understanding at the political nationalist outlooks they may have assumed level. It is clear, that none of the parties involved on Indian and Pakistani side there has always in the conflict can alter the status quo through remained a broad consensus among the people military means. It is perhaps this realisation which on organic unity of Jammu and Kashmir. In this brings India and Pakistan closer on cross-LoC context when the LoC is opened for travel and trade cooperation in Kashmir. It is absolutely important to it comes as most significant moment in the life remember that Kashmir is no more the only issue of the people who have spent decades in waiting of contention between India and Pakistan at present for opportunities to cross the historic divides. The as it was in 1948. intensity of emotions with which people look at the opportunity of movement across the LoC depends The two countries are nuclear powers, terrorism is on the pain and circumstances they have gone a common threat to both and serious issue between through after separating from their dear ones or them, their economies are exceptionally sluggish the celebrated cultures of oneness. because of obstacles in economic cooperation. An overwhelming majority in both countries is of It is important not to forget that trade and travel the view that enhanced economic cooperation and through traditional routes –Srinagar-Muzaffarabad closer ties in other areas of interest like culture, and Poonch-Rawalakot –was not just launched but actually restored some six decades after these 9 Once conflicts escalate for a while, they often reach a stalemate: links got severed due to division of Jammu and a situation in which neither side can win, but neither side wants to Kashmir. But in these six decades the dynamics back down or accept loss either. For more on MHS see http://www. beyondintractability.org/bi-essay/stalemate of conflict have changed so much that restoration
Sengupta, Mahmud and Choudhary • 9 of links appears incremental gain for all principal of LoC believe in this trade and travel as essential stakeholders not really a lasting settlement. In that measure of building confidence for a lasting context all segments of society across both sides settlement which is acceptable to all.
Kashmiri dissidents and militant groups
In Kashmir Valley the All Parties Hurriyat both sides saying: “For fear of being labeled as Conference, the main political force symbolising treacherous should we sit at home and repeat dissent, is cautiously optimistic about LoC trade the song of UN resolutions. One lakh people and travel. “We have always supported cross- have already lost their lives. Should we wait for LoC trade to promote confidence building for the sacrifices of another lakh people before we resolving Kashmir issue”, says Mirwaiz Umar begin to look at the other possible ways to resolve Farooq, the chairperson of All Parties Hurriyat the issue?” Conference (APHC). Contrary to the assertion of While all political parties in Azad Kashmir are fringe elements who dub LoC trade as a tactic foremost supporters of the Cross-LoC trade and to divert attention from the core political issues, travel, in Jammu and Kashmir the mainstream10 Mirwaiz looks at this CBM as an essential support political parties compete against each other in to the peace process. Syed Ali Gilani who heads claiming credit for getting the LoC softened. the hardliner faction of APHC and has also not Notable among the AJK parties is the Muslim averse to promotion of cross-LoC cooperation Conference which has long been stressing on but he wants follow up on the political issues. swipe card based LoC crossing open to every “After initiation of these steps, dialogue should resident of Jammu and Kashmir on both sides of be held with pro-freedom leadership to resolve the divide. In Jammu and Kashmir, the Peoples the Kashmir issue in its historical perspective”, Democratic Party, which ruled the state when LoC says Gilani. The militant leadership is, however, travel was initiated, has the Jhelum Valley Road much critical though not completely opposed. Syed dotted with billboards on eve of elections to drive Salahuddin, the chief of United Jehad Council who home a point that it got Srinagar connected with hails from the Valley but lives in Pakistan, says Muzaffarabad. In its proposal for lasting settlement that the ‘cross-LoC trade is a deliberate attempt of Kashmir the People’s Democratic Party lists to weaken the freedom movement in Kashmir’. cross-LoC institutional cooperation and common “Lakhs of Kashmiris had not scarified their lives use of Indian and Pakistan currency tenders as for the trade”, questions Salahuddin. “We are not way of addressing external dimension of the issue. against trade but the intensity and the clamour The National Conference, Jammu and Kashmir’s about the trade is aimed at diverting the attention oldest political party, is equally enthusiastic. The of the people from the core issue of Kashmir”, he competitions of these parties in claiming credits says. It may be mentioned here that barely few for LoC trade and travel are not the expressions months after the launch of cross-LoC travel in in isolation. These campaigns are in response to 2005 Mirwaiz headed a delegation of APHC to travel the emotional expressions of the people which the to Muzaffarabad and Islamabad through Jehlum parties are eager to take along. Valley road. The visit drew flak from the United
Jihad Council and the hardliners in Srinagar, with 10 In context of Jammu and Kashmir the mainstream political parties are an unfazed Mirwaiz criticizing the hardliners on those which context elections and seek to enter offices of power.
Peace sentiment: What do traders think?
Even in face of strict security monitoring, opinion poll11 was conducted with the traders in cumbersome trade regime and absence of February 2012 and formally launched in Jammu essential infrastructural facilities the traders are and Muzaffarabad later in April. A sample of more optimistic about cross-LoC trade than one 10 per cent of all the traders engaged in four would have imagined. As a part of this study an
11 See full report on first ever perception survey with Cross-LoC traders on both sides of LoC in Jammu and Kashmir at http://www.c-r.org/sites/c-r. org/files/perception_survey_peacebuilding_crossLoC_trade201204.pdf
10 • Cross-Line of Control Trade Peacebuilding and economic potential trading points on both sides of Line of Control such initiatives but those on the Pakistani side have was selected and they were presented with open more overwhelming response. ended questions. Despite absence of options to Even as the infrastructural facilities towards the chose there was a large similarity of answers trade facilitation centres on both sides of LoC have which reflected a common approach of traders considerably improved over the past three years but irrespective of their location and the political the key requirements for any business –access to atmosphere they live in. markets, free travel, communication and banking There are 472 traders belonging to ten districts – are still missing. Despite these critical lacunae of Kashmir province and two districts of Jammu and other procedural difficulties, a good number of province registered for trade through Salamabad- traders have sustained their interest and many new Chakhoti sector (also known as Srinagar– are joining. Of all the respondents for this survey, Muzaffarabad route) and 165 traders belonging 49 per cent have stayed on in the trade despite all to only three districts of Jammu province and difficulties right from inception. Twenty-seven per two districts of Kashmir province registered for cent are into it for the last two years while 24 per trade through Chakan-da-Bagh–Tetrinote sector cent were relatively new to the trade as they joined (also known as Poonch–Rawalakot road). On the at different points during last one year. Pakistani side of Line of Control there are around 2,200 traders but only 600 of them have reported In a true reflection of diversity of stakeholders in active. Therefore, equal number of sample was Jammu and Kashmir there is no single factor which selected from both sides12. became first reason for the traders to come into Cross-LoC trade. However, analysis of individual The survey reveals that at least 6 out of the 10 responses brings about the much obvious results. traders have relatives on the other side of LoC. As Unemployment seems to be a major reason for many as 62 per cent of the respondents confirmed coming to cross-LoC trade but there is also a that they have relatives on the other side and most significant number of traders who claim that of them said that their status of being the members of divided families was major basic reason for supporting the Confidence Building Measures was joining the cross-LoC trade. also major motivation for them. Of all respondents, 36 per cent have said that they saw in cross-LoC Looking at the basic purpose of launching cross- trade an avenue of addressing their problem of LoC trade, a significant majority of 60 per cent unemployment. Twenty-five per cent of respondents traders think that Confidence Building Measures claim to have made a careful decision in supporting involving people to people contacts across the the peace process while for another 19 per cent Line of Control –travel, trade and tourism etc –can the cross-LoC trade came to them as an additional actually help in paving way for the resolution of source of earning money. Again, these reasons vary Kashmir issue. While the traders on Indian side of across both sides of LoC. An overwhelming 40 per LoC are still little cautious about the end result of cent of respondents on Pakistani side have listed support to peace process as their first reason while 12 The number of traders mentioned here was at the time of survey in early 2012 only 10 per cent on the Indian side said so.
Cross-LoC Trade: Analysis and recommendations
Ever since India and Pakistan agreed to convert the rather than conflict and confrontation, becomes Line of Control into the Line of Commerce in effect the preferred option to bring peace to this region. making the LoC meaningless in a “adversarial Thus when trade is allowed to occur between India strategic” sense, efforts, often sporadic and often administered JK and Pakistan administered JK, or seemingly directionless, have been made to give the terms that are used in this report, LoC East and effect to this vision. Commerce between the parts LoC West, the gains from this trade and the spread of the erstwhile Jammu and Kashmir that are of these gains must be such that conflict is not today administered by India and Pakistan, it is longer an attractive option. As this report argues, hoped will be the precursor to a state of affairs the cause and effect of this trade is by no means when the Line of Control that divides the state will only economic in nature. become “irrelevant.” Like negotiations between Indian and Pakistan For that to occur, the peace dividend that accrues whose trajectory is often non-linear, the trading from commerce must be such that cooperation arrangements that have been put in place for LoC
Sengupta, Mahmud and Choudhary • 11 East and West do not on the surface seem logical. If or Third Party Goods imported by Pakistan enter integration between the two parts of the erstwhile LoC East. State of Jammu and Kashmir was indeed the goal But for a long time recently this was not how trade of the two negotiating governments, then a number between LoC East and West has been structured. of arrangements could have been considered. The cross-LoC trade as has been practiced till The simplest of these arrangements (and arguably very recently come about, at least in part, because the most logical one) would have been to allow of deep emotional feelings and an inexplicable free trade of goods (and possibly services) between leap of faith between a set of individuals who LoC East and West provided they are according made enormously risky investments in spite to a pre-decided Rules of Origin deemed to have of the absence of the normal safeguards and been produced in the erstwhile State of Jammu institutions that govern trade between nations, and Kashmir with goods from the rest of India and and the unreasonably restricted space afforded to Pakistan also circulating free of customs duty both traders by a selection of tradable commodities that in LoC East and LoC West or after the imposition do not seem to take into account the structures of of a common tariff or a tariff set by their respective production and demand on both sides of the LoC. national governments and levied as Indian goods This has given rise to a structure of trade and enter LoC West or Pakistani goods enter LoC East. traders that will prove to be problematic in the Third Party goods to also circulate free of customs medium run as the coming evolution of the duty both in LoC East and LoC West or after the structure of trade and beneficiaries will in all imposition of a common tariff or a tariff set by their probably exclude the pioneers who invested so respective national governments and levied as much in the face of immeasurable risk and often Third Party goods imported by India enter LoC West unhelpful governments.
The basis of trade: What do LoC East and West have?
Paul Krugman once remarked “regions trade to take for a host of horticultural items like apples, walnuts, advantage of their differences.” Thus, following this almonds etc. the state is a net exporter. Krugmanian definition LoC East and West would Where industry is concerned, a historical legacy import items that are unavailable or in short supply of the centre and state governments trying to in their respective regions and export those goods promote industrial growth as a part of national that the other region requires and they produce. industrialization strategy or as a means to promote Thus an analysis of demand as well as production decentralized growth has ensured the existence both in LoC East and West is crucial if one is to of an industrial base in the state. This base, which make any prediction about the composition and while not as extensive as its southern neighbours volume of trade that would occur. i.e. Punjab and Haryana, is not negligible either LoC East and is spread across industrial estates in Samba, Kathua, Bari Brahmana (in Jammu Division) and If one looks at the sectoral composition of LoC East’s Khanmoh, Shalteng, Rangreth and Lathipora in economy, it is clear that services today dominate the Kashmir Division. Items varying from cement, economy (45.9 per cent) followed by Industry (27.2 construction steel, paints, pharmaceuticals, plastics per cent) and Agriculture (26.9 per cent) as of 2007-8 are manufactured in these estates. Registered data where the Gross State Domestic Product of the State as in the Annual Survey of Industry reveals that stood at Rs 23,000 crores. Growth in the same year 649 factories in the state added net value of over was led by Banking and Insurance (9.1 per cent), Rs 3,200 crores and employed 45,000 workers. Construction (12.6 per cent), Manufacturing (11.7 per cent) and Transport, storage and Communication The numbers with regard to Micro, Small and (15.7 per cent) (CII-200913). Medium Enterprises (MSMEs) are more impressive. The number of registered small-scale industries Where agriculture is concerned, the state is not (SSIs) in 2010 was 53,157 employing over 247,000 self-sufficient in food crops and per hectare yields of people. These units include handicrafts such as crops like rice, wheat and maize are not significantly shawl making, papier-mâche etc. the demand for above the (already low) national average. The same which in the national and international market is true for items like, milk, meat and eggs. However, is immense.
13 Investment Climate- A Study of North Indian States of India, Confederation of Indian Industry, 2009
12 • Cross-Line of Control Trade Peacebuilding and economic potential However, if we concentrate on those units that are number of people from LoC West have emigrated listed in the Annual Survey of Industry, it is clear abroad, viz the UK and the Gulf to better their lives. that these were set up in Jammu and Kashmir to Their remittances play a very important role in the take advantage of the subsidies that were on offer economy of LoC West. on account of the various schemes implemented The importance of remittances can be gauged from by the central and the state governments and were the fact that while the population of LoC West is less meant to serve a larger market. Thus there exists than 2 per cent of the population of Pakistan, 6.25 excess capacity that can cater to demand generated per cent of remittances remitted by Non-Resident by LoC West should such demand make itself felt. Pakistanis go to LoC West. Remittances sent by Regarding the pattern of demand generated by LoC official channels to Pakistan were $7.8 billion in East, the demand is largely for food items and fruits 2008 which means approximately $ 500 million was where primary goods are concerned and fast moving the share of LoC West (Nenova et al 200914). consumer goods. By and large these are met by the rest of the national economy. A noticeable demand Research on how remittance money is spent in that is generated by the state is the demand for LoC West is revealing. It shows not only have financial instruments which includes participation remittances contributed significantly to increase in the stock market in particular and the financial income (25 per cent by some estimates), but also market in general. receivers of such remittances spend this money to buy plots, start construction/renovation activities, LoC West purchase vehicles and household appliances as In contrast, the industrial base of LoC West is well as meet daily expenses, medical bills, school 15 more modest. Officially, the cumulative investment fees and social ceremonies (Khan et al 2011 ). in industry in LoC West is Pakistani Rs 1,740 This means that as market LoC West would be15 crores and employs 10,000 people. However the in demand for construction material like cement, classification of industry in LOC West is flexible construction steel, paint, household appliances etc. enough to include poultry farms and hotels while LoC East would be ready at least to supply part of other items like bakeries, flour mills and stone the items demanded if such trade was allowed. crushing units clearly cater to domestic use. Thus the industrial base of LoC West seems to 14 Nenova, T, C. Niang and A. Ahmad, Bringing Finance to Pakistan’s Poor: A Study on Access to Finance for the Underserved and Small Enterprises, preclude significant export potential to LoC East World Bank 2009 or for that matter be able to generate a market for 15 Khan, H,M.Israr, M.Summar, S.N.Shaukat, M.Khan, Abdulmanan, N. Ahmad and R. Karim, Impact Of Remittances on the Socio-Economic LoC East’s products. This is, however, deceptive and Conditions of Rural Families in District Poonch of Azad Jammu and cognizance has to be taken of the fact that large Kashmir, Sarhad Journal of Agriculture Vol.27, No.4, 2011
The potential consequences of a single market
What would happen if the State of Jammu and LoC West and manifests itself in the construction of Kashmir were to be a single market in the sense often palatial homes. that goods produced in LoC East and West could be Thus there would be considerable demand for freely exchanged? construction material e.g. cement, construction It is clear that in such a scenario, given the steel, paint etc. which are produced in LoC East. In structures of production and demand, the balance contrast there are few items that would be made in of trade would largely be in favour of LoC East. This LoC West that would be demanded in LoC East. is because as already stated, given the sustained This asymmetry does not mean that LoC West will support to industry via the various industrial lose because the items that would be imported promotion policies financed and administered by are not made in that region. They are either both the state and central governments, there imported from “mainland” Pakistan or from abroad. are several industrial hubs both in Jammu and Similarly consumption items like plastic items Kashmir. In comparison, LoC West’s industrial are manufactured in LoC East. These too could be presence is far more modest. But LoC West is an exported to LoC West. impressive market because of a large expatriate population that is divided between the UK and The consequence of this trade would be to benefit the Gulf States. The remittances sent by these the consumer in LoC West and industrialists in LoC expatriates are considerable given the population of East. It is likely that industrialists would directly take
Sengupta, Mahmud and Choudhary • 13 charge of their marketing rather than use locals who This, however, cannot be calculated a priori. It is reside near the LoC or deal directly with established likely that the MSMEs would play a larger role in traders located in the urban areas of LoC West. this trade given their small size and flexibility. However, the consequences of a more open trade What can be calculated is likely to reveal that the regime in particular and a more open market “metropolitan areas” of the region will gain more regime are often unpredictable in favourable ways. than those who live near the LoC. This may not Entrepreneurial ingenuity in ferreting out unstated be a “fair” outcome to those who commenced this human desires can have unexpected consequences trade at no small risk to the huge sums of money and may result in new products and services that they invested, but it is an outcome that cannot be may have either a local or a more universal appeal. ruled out.
Analysing volume of trade and goods traded
The Reality of Cross-LoC Trade as it commenced or LoC West. There is, however, one silver lining in and progressed until very recently was of course this entire process and that is the creation of a new substantially different. While India and Pakistan did class of businessmen who have come to their own single out that out of the 72 Confidence Building as a result of this trade and this has much to do Measures (CBM), Trade and Travel across the with the process of cross-LoC trade itself. LoC as a key element of the Confidence Building However, there are signs that this cross-LoC trade Measures between India and Pakistan, the manner has now reached a plateau. This on account the in which this would be operationalised was governments of India and Pakistan cracking down unconventional. of the items that were being traded but were not on the list. At the same time list has not yet expanded The Volume of cross LoC trade (the sum of trade in to include all the items that are produced in the the sectors) has generally been on the upward trend erstwhile princely State of Jammu and Kashmir. growing from approximately 138 crores Indian in This is hardly surprising and is a development 2009–10 to 315 crores in 2011–12 (one way trade). that would have occurred either as a result of If calculated in terms of per annual percentage administrative action or through natural processes growth, such growth would look spectacular but it when traders would seek out more “rational” must be remembered that the original base trade routes to export their wares to the main Indian and itself was low to nonexistent. The choice of goods Pakistani markets which are and would remain traded, however, reveals the real premise of this the final destination of goods that today are traded trade. For LoC East, the main items exported are 16 items like onions and various kinds of spices and across the LoC Cross-LoC and trade: The process coconuts none of which is produced in LoC East. The process of trade that prevailed till July 2012, as Similarly, amongs the items imported, dry fruits described in detail by Kira (2011), was a complicated and carpets dominate which again are produced and a time-consuming one (see Appendix III) and can in other parts of Pakistan. Another item which had be understood with the help of the flow chart below: a significant presence before authorities banned While todal trade is a more simplified process (See its trade was mungi (a local popular kind of pulse) Appendix IV), the initial conditions that existed it can which again must have been brought in for trade be argued is largely instrumental in deciding which from outside LoC West. Given below are two tables of the traders are still in business today. that show the volume of cross-LoC Trade through both crossing points, i.e. Salamabad-Uri as well as The consequence of opaqueness the Chakkan-da-Bagh–Poonch. The initial complicated nature of trade served to In addition the volume of trade, given the narrow make trade opaque and is restrictive in nature. The local market, also indicates that cross-LOC trade consequence of this opaqueness and restrictive is actually India-Pakistan trade through Jammu nature of trade was that it kept out the more and Kashmir. established business of Jammu and Srinagar from Clearly, while borders are being rendered this trade. After all seen in a rational manner (in “meaningless,” the economies of LoC East and LoC the classical profit maximizing businessman’s West are not being integrated, which was the main viewpoint), venturing into cross-LoC trade was not motive behind promoting cross-LoC trade. The an attractive proposition given other alternatives. beneficiaries clearly apart from local businessmen who handle this trade are clearly producers of 16 Kira, A.H. Cross LoC Trade in Kashmir: From Line of Control to Line of Commerce, Working Paper Number 2011/020, Indira Gandhi Institute of these products who are residents of either LoC East Development Research, Mumbai
14 • Cross-Line of Control Trade Peacebuilding and economic potential This space was thus given to other smaller regime would entail would be worth it given their businessmen for whom the trouble such a trade potential alternatives.
Year Export to AJK Import from AJK No. of Value in crores No. of Quantity Value in crores Quantity in qtls. trucks (Ind. Rs) trucks in qtls. (Pak. Rs) 2008–09 180 3987.31 1.3625 219 7293.39 - 2009–10 1830 119004.75 71.8046 2662 193221.06 92.4149 2010–11 3650 247235.20 156.4756 2413 159907.58 260.4339 2011–12 4406 350079.81 244.3543 2960 201376.71 407.7228 2012–13 (Ending 6070 498081.77 275.5556 2880 200186.43 456.3789 01/2013) Total 16136 1218388 749.55 11134 761985 1216.95
TABLE 1: Trade Facilitation Centre, Salamabad, Uri
Year Export to AJK Import from AJK No. of Quantity in Value in crores No. of Quantity in qtls Value in crores trucks qtls (Indian currency) trucks (Pakistan currency) 2008–09 42 1534.76 0.39 23 185.50 0.6066 2009–10 1492 142921.76 67.17 1560 59196.53 127.0719 2010–11 1836 133443.72 88.76 1626 113377.36 171.3454 2011–12 2020 115192.60 75.83 1255 167158.46 123.5179 2012–13 ending 969 94011.52 33.7282 591 462979.65 58.4878 11/2012 Total 6359 487104 265.9 5055 802897 481
TABLE 2: Trade Facilitation Centre, Chakkan-da-Bagh oonch
In addition, emotional attachment to the other part relatives on the other side was not surprising. of the LoC also played a major role. It is not easy The condition of barter which meant an artificial to justify the risks taken in the absence of a proper balancing of trade ensured that this benefit was dispute settlement mechanism if the business prematurely capped. Its effect on the rest of both partner on the other side of the LoC decided to sides of LoC must have been strictly limited as the renege on a deal. Thus businessmen located close bulk of these goods outside Jammu and Kashmir, to the LoC became pioneers not because they were on both sides of the divide. Thus it is not surprising the best suited, but because they were the most that participants have asked for the liberalization of eager. However as enquiries reveal, the proportion this trade to include banking facilities and consider of first-timers is also significant which meant that barter trade to be a hindrance. It is also not for some this virgin area offered an opportunity to surprising that most traders want the inclusion of join the ranks of businessmen in the state. items that are produced anywhere in India and the Indian side or more precisely the state government By operating in conditions that were opaque of Jammu and Kashmir has proposed certain and restrictive they were able to gauge demand measures in this regard. From their perspective, conditions on the other side and over time started this is understandable as trade across the LoC as to fulfill that demand. Interestingly, the structure controlled by them implies that an increase in item of demand did not always conform to the list of coverage will lead to rise in volumes traded and allowable items and yet these were supplied, an thus profits. Indeed, for those who have persevered act involving great risk and courage, given that have witnessed that this trade has grown steadily the consequences could have left to seizure of and continuously. It is now known among traders goods without compensation. Thus some local that issues of trusting their partners depend on the businessmen prospered from this trade. The ones choice of partners and using their relatives across who survived, it appears are the ones who were the LoC they have tackled this problem. Therefore, able to find a market on the other side of the LoC. most traders have made money from cross-LoC This given the fact that most participants had trade notwithstanding the inconvenience
Sengupta, Mahmud and Choudhary • 15 of barter trade with the added task of converting LoC and deprived of the most rudimentary forms of goods received in lieu of payment into cash. communication have managed to evolve a dispute Additionally, the fact that traders divided by the settlement mechanism is remarkable.
Business sentiment: What do traders think?
A survey of the traders dealing in the cross- settling their accounts as already mentioned the LoC trade carried out jointly by Indus Research quality of goods delivered from the LoC West mainly Foundation (IRF) and Centre for Peace, depend upon the trading party and if its relatives Development and Reforms (CPDR) for the present the element of risk is diminished with 38 per cent study reveal how they look at cross-LoC trade in its respondents voicing this concern although 44 per entirety. It is interesting to note that more than 50 cent were satisfied with the goods that they receive. per cent of the trade taking place in these areas is Also, limiting the trade to 21 items is seen as between the relatives but hardly surprising as this stifling the potential for trade in other items. It is is the only way to create an atmosphere of certainty interesting to see that all the respondents are in in a very uncertain market. favour of redrafting the list of the item for trade and Traders on the Indian side admitted that several they also want that the list should not be limited traders on the other side are seeing the opening to the state of Jammu and Kashmir but the trade of cross-LoC trade as an opportunity to have a items so included should be from the other parts of comfortable life as nearly 65 per cent have said that the country. As it was seen that the goods that were the future of the trade is bright and are in favor of traded also included items like coconut, cardamom, it to be continued. It is important to note here that banana, pineapple among others items. since this trade is based on a system of barter, traders have more reasons to feel comfortable Although the trade with its own issues and teething trading with their relatives rather than with a problems has provided the traders from the both faceless trader whom they have not met, as it sides an opportunity to grow and expand business involves risk. in to new markets as mentioned by the traders in their responses that they were able to find new It is also seen that the traders have generally markets with this trade (92 per cent) and are able earned profits from the barter system (85 per to project profits due to this trade (82 per cent) and cent of the respondents) but they do admit that 85 per cent of the traders are able to realize the the process of barter trade is a long, lengthy and money that they have invested in the trade. a hectic process to convert goods into cash and therefore demand a proper banking system to realize Another good sign was that 62 per cent of the cash from the trade as soon as possible because traders are those who are associated with the trade barter trade actually diminishes their working since the beginning meaning that the trade has capital or the cash that they have for the business actually provided them with the sufficient returns to process as according to the traders the conversion remain associated with this trade. takes anywhere from 20 days to few months. In other The profits made by traders may actually be words realisation of cash is the need of the hour quantified. Presently, the average value of goods for the traders. There are several difficulties in the being exchanged over the LoC (or two way trade) process of conducting this duty-free trade. The TFO in the Poonch-Rawalakot sector alone varies from pointed to the need for better infrastructure at the Indian 6- 8 crores per week or roughly Rs 350 TFC for storing of goods as these are not insured. crores per annum. If this is assumed to be equally Also, the process of offloading and reloading for shared by the registered traders in this sector, it screening causes damage especially to fresh fruits translates to a turnover over Rs 2 crores per annum whose value depreciates greatly. per trader. For any reasonable rate of return, the The traders felt there should be a bigger scanning profits earned would be considerable. Even if we machine that can scan the entire truck without now do away with the unrealistic assumption of offloading, as reflected by the 57 per cent cross-LoC trade being shared equally by all traders, responses about the facilities provided at the TFC the fact remains and which is confirmed by the being unsatisfactory. traders surveyed that this trade is a lucrative one. Since this is mainly barter trade, the value of The traders are now looking at the various commodities exchanged is hard to determine and improvements that can be brought into the businessmen on both sides have difficulties in existing structure so that the ending result of the
16 • Cross-Line of Control Trade Peacebuilding and economic potential trade is beneficial for everyone involved. The few from this trade but they will be located in the main suggestions that were given by the traders are: commercial sectors in Jammu and Kashmir. 33The holding of Trade Awareness Programs There is no reason to argue that the pioneers will lose out, but a change in strategy will be necessary 33Increase in Items List (Traded items) for them to take advantage of the increasing and 33Good Indo–Pak Relationship perhaps inevitable liberalization of cross-LoC Trade. 33Ease of Access in LoC (Especially for Traders) The advantages that traders near the LoC possess 33Common Banking / Sale - purchase system are flexibility (due to relatively smaller size) and But the future of cross LoC trade may not be as better knowledge of local demand conditions. Thus they think. local traders will have to trade in a spectrum of The possible consequences of trade items that will find takers across the LoC but where no single item has that critical size where the ‘regularisation’ producer finds it economic to deal with a distributor As cross-LoC trade becomes “regularised” in the in LoC West. sense that banking facilities, the removal of barter, Jammu and Kashmir: A Common Market for the inclusion of more items that are produced anywhere on either side of the divide in Jammu Trade and Investment and Kashmir becomes part of the list of tradable It may be argued that the drive to make borders items become part of the process of going forward porous and to convert the Line of Control into coupled with exclusion of those items that are not a Line of Commerce has largely been pushed produced in Jammu and Kashmir (East and West), it by India. As the two countries near this goal, is clear that more people from the state will benefit consistency demands that the next logical step,
Cross-LoC Flow
Shipment from origin
Goods arrive in Trade Facilitation Centre (TFC) Customs clearance Salamabad/Chakan-da-bagh
Quarantine certificate Not as per Standard No TFO verifies the Operating Precedure, sent goods and ends back to the trader truck to Zero line Security clearance by J & K police Yes
Security personnel escort the goods loaded trucks to Zero line and handover them to Army for crossing the Zero line
No Goods returned same day TFC Chakoti/ to TFC Salamabad/ Rawalak ot Chakan-da-bach
Yes
Goods reach consignee after verification
Source: Kira, Cross-LoC trade in Kashmir: From Line of Control to Line of Commerce. 2011
Sengupta, Mahmud and Choudhary • 17 the free flow of investment between LoC East important constituency would be brought on to the and LoC West, should follow. This will be a more path of peace. evenly contested affair, if trade and investment From this to a freer flow of natural persons flows be called as such. In contrast to non-resident between LoC East and LoC West for tourism, Indians the bulk of whom are professionals, the education, business and personal persons is the emigrants who trace their origins from LoC West next logical step. It is only then that borders would boast of quite a few businessmen who have made be rendered meaningless. their fortunes in hospitality and tourism. This complements the needs of Jammu and Kashmir, However, sequencing of steps is important as is where tourism is important but where the sector follow-up action. Flows of investment build an is need of investment and a good degree of obvious bond- the recipient witnesses an increase professionalism. in output due to this investment while the investor has a vested interest to see that the location of Such a step would bring in an important and vocal his investment is free of turmoil. This mutual stakeholder, that is the emigrant from LoC West interdependence if spread sufficiently wide and with and integrate him with the peace process. By sufficient stakeholders builds up a considerable giving him stakes in cross-LoC commerce a very constituency for peace.
Summary and conclusion
The economics of trade has its own logic and well as the movement of permanent residents of JK dynamic: it cannot be ordered to benefit whoever State, these gains will increase even more. policy makers should think should be benefitted. But the aim of cross-LoC Trade is more than However, traders who have risked fortunes to be to benefit people who live on the LoC; it is to trail blazers in a trade regime filled with opacity cement the two sides of what was once a single and obstacles can also be expected to discover new administrative entity and in the case of Jammu avenues and opportunities for profit. Given their region what was once a single socio-economic- proximity to the other market and the cultural and cultural unit into one unit again. In the run up to linguistic affinity that they possess the process of that goal, violence to resolve the case of Jammu discovery and even the creation of new markets is and Kashmir remains no longer an acceptable or a likely outcome of the process forward. Eventually viable option. as the transformation of the Line of Control to the Line of Commerce starts to include investment as
18 • Cross-Line of Control Trade Peacebuilding and economic potential Appendix I Appendix II
Agreed Outcomes of the Meeting of India-Pakistan Standard Operating Procedures for Cross LoC Working Group on Cross LoC CBMs, held on 18 July Trade, current July 2012 2008 in Islamabad Trade across the LoC is restricted to 21 items. 33Triple entry permits will be introduced with effect These are the products produced on both sides from 1 October 2008. A separate form for this of the LoC. Trucks with valid papers are allowed purpose has been agreed upon. All three entries to enter. The process is computerized and single- are to be made from the same crossing point. This entry permits known as Truck Entry Permits facility will be automatically available to senior are issued in triplicate by the respective Trade citizens and accompanying spouses. Facilitation Officers (TFOs). The drivers are given 33Regional Passport Officer, Jammu and Deputy entry permission after a thorough checking of their Commissioner Rawalakot would be the respective background. The permits contain a photo ID of the designated authorities for the Poonch–Rawalakot driver, his name, address, license number and bus service with effect from 1 October 2008. details of the vehicle. It also specifies that there is no contraband or dangerous material in the 33Monthly coordination meetings between the vehicle or in the consignment. For the purposes designated authorities will be held, with the of ready indentifiability, the drivers of these trucks provision to convene urgent meetings whenever are made to wear bright yellow and pink jackets/ required. vests with “Driver-Chakoti/Rawalakot” and “Driver 33Crossings will stand enhanced to 60 persons per Salamabad/Chakandabagh” respectively inscribed crossing. on the back. They are permitted till the designated points where they offload their trucks. The same 33Steps to be taken to reduce processing time for applications on both sides. drivers are not allowed frequently. Once the trucks enter, they have to return the same day after 33The operation of the Tithwal–Chiliana crossing offloading. point will be effective from May to November of every year, in view of the accessibility problems in The trucks are allowed to carry a capacity of the winter. 1 to 1.5 tonnes. The cargoes are sealed by the TFO. The signatures and seals of the TFOs are 33 Crossing on Uri–Hajipir will be facilitated. exchanged by both sides. The cargo has to clearly 33The Designated Authorities will start exchanging indicate the items being carried, the particulars application forms by e-mail from 1st October 2008. of the consignor(s) and the consignee(s) and the E-mail transfer will be backed up by hard copies. packing list with marks and numbers, which has to 33In cases of emergencies (death of close relatives accompany the consignment. A copy of the invoice across LoC), clearances to be processed within a raised by the exporter has to be carried and both week. Stay in such cases will be for up to 7 days. these documents are to be attested and sealed by This will be effective from 1st October 2008. the TFO. The two countries have taken appropriate security steps to facilitate cross-LoC trade. 33 Frequency of Srinagar–Muzafarabad and Poonch– Keeping the security concerns in mind, the truck Rawalakot bus services will be increased from movements are allowed on four days a week, both fortnightly to weekly with effect from 21 August on the Srinagar-Muzaffarabad and the Poonch- 2008 and 25 August 2008 respectively. Rawalakot routes, between 0900 hrs and 1600 hrs. 33Designated Authorities will reconcile data As per the modalities finalized by the two countries, regarding crossings regularly. there would be a regular review of the flow of trade, a list of items and the modalities on a quarterly Cross-LoC Trade basis by the TFOs. However, the first review is to be carried on by the Working Group on Cross-LoC 33List of commodities to be trade with zero tariff CBMs, and on an annual basis thereafter. regime were exchanged. To begin implementation, each side will indicate the items that they are To ensure that there is no breach in security during willing to receive. the process of trading, the registered drivers from both the sides are verified at the time of departure 33The visit of Chambers of Commerce from both and arrival. The drivers are only allowed entry up sides of LoC will take place as early as possible to to the respective Trade Facilitation Centres (TFCs) make recommendations on modalities of trade. – on the Indian side and on the Pakistani side – Source: Ministry of External Affairs, India where the goods are loaded and offloaded. Once the
Sengupta, Mahmud and Choudhary • 19 goods are received, they are screened electronically under the approved list of items are not allowed at the TFC warehouse. The Custodian who is the to be loaded in the vehicle. The consignments of overall in-charge of the TFC is responsible for plant/plant products are issued a plant health the registration of traders who are sending their certificate by the designated quarantine officer, goods and ensures that the items traded are part of which is attached with the cargo manifest. The the list. stuffing of cargo is done in presence of TFO and on completion of the stuffing the trucks are The documents that are submitted to the Pakistani side and vice-versa, are: sealed by the TFO with a onetime tamper-proof bottle seal or lead seal. The transporter or his 1. Cargo manifests duly certified authorized representative submits cargo manifest 2. Truck entry permits of the vehicles (in duplicate) to the TFO. The manifest is certified by TFO in the manner specified in the manifest 3. Plant health certification after cross verifying with the invoice copies 4. Security certificates and based on the physical examination already conducted. The TFO mentions the bottle seal/lead 5. Invoices seal number on the manifest. After conducting the As per the agreed modalities (SOP), the cargo verification checks, the Jammu and Kashmir police passes the Line of Control at Kaman Post (Uri) and certify that no contraband or dangerous material Chakan-da-Bagh (Poonch) after being cleared by is in the vehicle or consignment. The certificate is TFC, Salamabad or Chakan-da-bagh respectively. attached with the cargo manifest on being shipped The movement of vehicles carrying goods on the to the crossing point for shipment. The truck or two routes is allowed on Tuesday and Wednesday the vehicle carrying the goods then commences between 0900 hours and 1600 hours every week. movement under escort of the security agency to The two days have now been extended to four days Chakoti or Rawalakot on the other PaK side of Line a week as per the agreement between Pakistan and of Control. India in July 2011. The Trading-In process (Inward Clearance of The process is also comprised of the following formalities to be done for the purpose of import Cargo): and export: Each vehicle driver who crosses the Line of Control points from PAJK carries a ‘Truck Entry Permit’ in The Trading-Out of goods (Outward Clearance of triplicate that contains the picture identity, name, Cargo): address, license number, details of the vehicle and a certification that there is no contraband or The exporter of goods applies to the Custodian, whose function is presently being handled by dangerous material in the vehicle or consignment. General Manager District Industries Centre A Cargo Manifest (CM) is also carried by the driver Baramulla/Poonch for issuance of ‘Truck Entry entering the Line of Control. The immigration Permit’ (TEP). The custodian forwards the officers at Kaman Post and Chakan-da-bagh check application to the designated officer of Jammu and the TEP and keep record of the entry and exit of Kashmir Police to verify the antecedents of the the driver. At the time of entry, the driver hands exporter, which then issues TEP to the applicant over one copy of TEP to the immigration officer, in triplicate. On receiving the TEP, the goods are the second copy to the Trade Facilitation Officer shipped to TFC Salamabad or Chakkan-da-Bagh and the third copy is stamped ‘Exit’, when the as applicable one day prior to the trade day. The driver leaves the LoC. The plant and plant products exporter hands over TEP along with the invoice consignments are accompanied by a ‘plant health copies to the respective Custodian. The transport certificate’, which are inspected for pests, weeds operator or his authorized representative presents and disease by the quarantine officials on arrival. himself before the Trade Facilitation Officer (TFO) Security clearance: at TFC along with the empty truck and after getting security clearance on the day of dispatch of goods The preliminary screening of documents of the undertakes rummaging. The Custodian then cargo and inspection of trucks is done at the presents the cargo for inspection and examination crossing points of Kaman Post and Chakan-da- of TFO who verifies that the goods contained in bagh. The officials of Jammu and Kashmir police the truck are as per the approved list of items. inspect the seal of the incoming vehicles and after The TFO subjects the cargo to X-Ray scanning or carrying visual inspection escort the vehicles in a physical examination to ascertain that the shipment convoy to TFCs Salamabad in Uri and Chakkan-da- contains the permitted goods. Any goods not found bagh in Poonch.
20 • Cross-Line of Control Trade Peacebuilding and economic potential The Processes at the Trade Facilitation Centre: ii) The cross rate of INR/PKR would be arrived by using market determined US$/INR and US$/PKR On reaching TFC, the custodian arranges for rates. This rate would be applied for sale/purchase unloading of the goods after verification of the of INR against PKR and would be a pure commercial seal and cargo manifest. The TFO verifies the decision taken by the banks. cargo manifest along with related invoice copies and checks as to whether the goods declared iii) Both the Reserve Bank of India and the State in cargo manifest are under the permitted list Bank of Pakistan would not be involved in the of items. The goods are then examined by J&K process of trade settlement and would not bear police officials from security angle before being the exchange rate risk in part or in entirety. Both sent to the warehouses for rummaging. The copy the central banks with the explicit permission from of cargo manifest and invoices covering the cargo their respective governments would however need are retained by the TFO and after unloading the to grant permission to their commercial banks trucks are allowed to return on the same day. to undertake transactions under the, proposed The consignment of plants/plant products is scheme. issued a ‘plant health certificate’ after inspection iv) The invoice will be denominated In Indian Rupees by the designated plant quarantine officer and (INR) irrespective of the direction of trade. on finding it free from pests, the consignment is released. However, if any live infestation is found, v) The final settlement of trade between the the consignment is rejected and sent back. The commercial banks would be in a mutually accepted consignments are subjected to x-ray scanning and international currency, say US Dollar. physical verification and if goods are found to be outside the list of 21 items, the same are returned vi) Since the exchange risk is arising out of a in the vehicle that brought them. commercial transaction, the exchange risk would necessarily be borne by the importer. This would be collected as a “Facilitation Fees”. Such fee Appendix III would also cover the exchange risk (up to final settlement), transaction costs, handling costs, etc. Cross-LoC Trade: Banking Mechanism proposed The fee could be a percentage of the cost of goods by Jammu and Kashmir Government and unveiled and should be added to the invoice i.e. invoice = cost on October 4, 2012 of goods + facilitation fee. “It is envisaged that the commercial banks in J&K vii) The model does not envisage any form of and PoK would provide a facility to their respective subsidy from either J&K Govt. /Bank or the exporters to realize their dues by opening a Trade Government of India. Facilitation Account at their end. The Initial debit and final credit by the exporters’ bank would be 2. Requirements for operational sing the model through the facilitation account. The exporter would be paid only after the Importer has paid his bank a) J&K Bank needs to be given permission by GOI/ treating the transaction akin to payment of bills on RBI to establish banking arrangements with banks collection basis. in PoK. Fifteen days have been provided for the settlement b) J & K Bank should scrupulously adhere to the cycle. Ten days has been set aside for the KYC guidelines issued by RBI for its exporters, transaction to be completed by the importer. importers, and the correspondent banks it would However, an extra five days have been included on deal with in PoK. This would be verified by the RBI the understanding that banks would periodically during its usual inspection/periodic scrutinies. settle amongst each other through the respective c) Any markup on exchange rate in the form of NOSTRO accounts. The exporter could also be facilitation fee, processing charges, exchange given immediate credit on day one based on their risk, etc is a matter of negotiation between two banker’s level of comfort with the party subject to commercial banks to cover their operational the terms and conditions prescribed by the bank. cost and offering protection to their customers. Flow charts showing the mechanism, process flows Facilitation fee as a percentage of cost of goods. and accounting process to be followed on collection/ as suggested in the mechanism, is by way of an credit basis for exports from PoK / exports from example only. The credit extended by J&K Bank J&K are enclosed in Annex I. Ltd should be subject to the extant interest rate i) The outstanding entry in the Trade Facilitation guidelines including that of base rate (in case Account would be reversed once the amount is immediate credit is afforded to the exporter/delay received from the bank of the importer. in settlement).
Sengupta, Mahmud and Choudhary • 21 d) Eligibility of goods for trade would be as per the Glossary list issued by the GOI. AJK Azad Jammu Kashmir e) At the border, an effective mechanism for APHC All Parties Hurriyat Conference clearing goods and transmitting the information to respective commercial banks is a must. Both CBM Confidence Building Measures the banks can visit LoC/clearing points for CPDR Centre for Peace, Development and familiarization with the mechanism in consultation Reforms with the respective authorities manning those points. IaK India administered Pakistan f) Net settlement by banks in both the sides need to IRF Indus Research Foundation be decided as to its periodicity and the currency of J&K Jammu & Kashmir settlement. Since the final trade settlement is with a bank or Pakistan, under normal circumstances, LoC Line of Control adherence to existing provisions of ACU mechanism MSME Micro, Small and Medium Enterprises would have to be ensured. PaK Pakistan administered Kashmir Since these transactions are denominated in local currency, they would fall outside the ACU SSI Small-scale industries mechanism. Therefore, it would require special TEP Truck Entry Permit permission to route such settlement outside the ACU mechanism with banks of Pakistan. Such a TFC Trade Facilitation Centres special arrangement would tantamount to trade TFO Trade Facilitation Officers with Pakistan though it is in effect with PoK which is deemed to be an Indian territory. However, keeping in view the decision taken by the Government /MHA for a special arrangement independent of the sovereignty related issue, the above proposal is being made. In this connection, a reference is Invited to para (e) of page 7 of 21 of F No 17/5/2009-BOA; MOF (Dept of Financial Services), GOI letter dated January 18 2010. MHA have vide their letter 6 October, 2010 to the MoF, DFS with a copy to RBI have advised that once a bankable proposition is finalized the formalities of getting approval is best left to the MEA and have requested the DFS to submit their proposal/plan for financial mechanism for conduct of cross LoC trade to MHA for taking up further with the Government of Pakistan through MEA.”
22 • Cross-Line of Control Trade Peacebuilding and economic potential
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